Review of Compensation Clause for Delay in Handing over of
Site in Highway Contracts
I D Kalra, Fellow
INTRODUCTION
National Highways Authority of India (NHAI) was constituted
under an Act of Parliament, the National Highway Authority
Act, 1988, to develop the National Highways. The development
works, entrusted to NHAI envisaged strengthening and four/
six-laning of existing high-density corridors. As the works were
generally financed by the external agencies, the contract
documents for the works are prepared based on Federation
Internationale Des Ingenieurs-Conseils (FIDIC) Conditions of
Contract. NHAI has so far completed work on over 12 000 km
length of the various corridors.
BACKGROUND
The work on most of the corridors got setback because full
length of the encumbrance free land, as stipulated, could not
be handed over to the contractors as planned/stipulated in their
contracts resulting not only in prolongation of contract periods,
but also added to the cost of work done due to escalation in
cost of inputs, additional cost of construction supervision,
claims from the contractors for idling/underutilization of their
resources and other cost over-runs.
According to Sub-Clause 42.2 of FIDIC General Conditions,
if the contractor suffers delay and or increase in cost on account
of failure on the part of the employer to give possession of
land for completion of the work in accordance with terms of
Sub-Clause 42.1 of FIDC General Conditions, the engineer shall
after due consultation with the employer and the contractor
determine the amount of such costs, which shall be added to
the contract price. In practice, it has been observed that once
the acquisition/handing over possession of the land is delayed,
the contractors start lodging highly inflated/frivolous claims
on various counts leading to disputes, which is mere exploitation
of the situation by the contractors.
PROCEDURE OF LAND ACQUISITION
The land is generally acquired for the highway projects, by
I D Karle is with Span Consultants Pvt Ltd, 92-C, Gurndwara Road,
Madangiri, New Delhi 110 062.
This paper (modified) was received November 9, 2005. Written discussion on this
paper will be entertained till April 30, 2006.
Vol 86, February 2006
NHAI, following the provisions of National Highway Laws
(Amendment Bill), 1997.Initially a notification is issued by the
Central Government in the official Gazette authorizing a person
or authority to perform the functions of competent authority
for such areas, as envisaged in the acquisition. This notification
inter-alia also gives a brief description of the land proposed to
be acquired.The acquisition of land sometimes takes over one
year or even more after the above notification has been
published. The delay sometimes extends to several years in case
the parties resort to litigation.
REVIEW OF CONTRACT DOCUMENTS
The standard contract documents being used by NHAI for
inviting tenders for highway projects need review to provide
suitable safeguards to avoid highly inflated/frivolous claims
from contractors due to delay in handing over of unencumbered
sites and consequent idling/ underutilization of resources and
their other cost over-runs. Some of the safeguards recommended
are as follows:
The contract should provide initially for submission of programs
for site/sections, which are immediately available for taking up
the work. The contractors can submit the supplementary/revised
program as soon as further unencumbered site becomes available
in affected sections.
In case of anticipated delay in handing over site, the work should
be foreclosed and a separate agreement may be entered into
with the contractor for executing the balance work, at later stage,
at mutually agreed terms when the balance encumbrance free
site has been made available by the client.
A suitable clause may be inserted in the contracts to provide
for extra payment on account of delay in handing over of the
site beyond the date stipulated for handing over the
encumbrance free site in the contract.
The BOQ should provide for items requiring contractors to
quote for additional payments for different periods of delay in
handing over of the sites.
In case it is not possible to vary the contract provisions as stated
above, the present contract documents should be revised to
include guidelines for assessing the actual cost of
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underutilization/idling of contractor’s resources on account of
delay in handing over the possession of unencumbered site as
stipulated in the contract. This should invariably include method
statement for computing man and machine resources actually
deployed vis-à-vis sources theoretically required/provided in
the contract.
CONCLUSION
The tender documents are highly legal and technical documents,
thus due care is required in preparing these documents. The
present standard NHAI tender documents for highway contracts
are highly comprehensive documents. The documents
meticulously cover all the aspects of highway projects. However,
the provisions reg arding payment of compensation to
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contractors on account of delay in handing over of the site/
encumbrance free land, as required for completion of the
project, are inadequate. Thus there is a need to upgrade this
document by making suitable provisions/amending the existing
provision to avoid highly inflated/frivolous claims by the
contractors in case of delays in handing over of sites/
encumbrance free land, which are sometimes inevitable.
ACKNOWLEDGEMENT
The author is highly grateful to Prof B S Dhiman, Managing
Director, Span Consultants Pvt Ltd, for his guidance and
encouragement in compilation of the paper. The author is also
thankful to Shri Jawahar Kaul, Sr Director, Span Consultants
Pvt Ltd, for his assistance in preparation of this paper.
IE(I) Journal-CV